Key Performance Indicator or Metric Formula or Definition Target ...
Key Performance Indicator or Metric
Gross Revenue
Net Revenue
Formula or Definition
Target
Business Purpose
Gross Revenue or "Top Line Revenue" is synonymous This is Facility Specific. GR is budgeted at From a revenue cycle management
with gross charges associated with the provision of the Financial Class Level based upon
perspective, the objective is rapid,
services
historical payer mixes, demographic studies, compliant conversion of Gross Revenue
material managed care contracting changes into Cash (and legitimate associated
and other forecasting methods.
contractual adjustments) Therefore, GR is a
significant input in a number of relevant
KPI's.
The term Net Revenue has diverse definitions within This is Facility Specific. The NR target is A primary objective of the Revenue Cycle
the industry but is best defined as: The value of the based upon reducing Gross Revenue by
Team is to increase Net Revenue through
hospitals dollar, less contractuals, less bad debt.
anticipated contractual allowances and a Bad denial prevention and recovery as the
Different methods are used to determine both the value Debt Expense target.
reduction of the Bad Debt Expense through
of the Active AR and related %'s that are applied to The contractual allowances and BD%'s are improved Self Pay receivable management
Gross Revenue to determine its Net Revenue.
applied by a combination of a calculated strategies.
model and/or history.
Net Patient Revenue (Before Bad Debt)
Lag Revenue
(Rolling 2,4,6 months)
Net Patient Revenue is Net Revenue prior to making Same approach as Net Revenue. deductions for Bad debt Expense and could be defined as "Maximum Net Collectible Value"
Most Gross Revenue is converted into cash and
N/A
associated contractual adjustments with in 45-60 days.
As a result, cash targets are based upon a prior month's
revenue or a rolling average of a prior periods revenue.
This is referred to as Lag Revenue. Some targets are
based upon a 2 month average with a one month lag.
Measure Cash as a % of Net Patient Revenue instead of Cash as a % Net Revenue. This approach is not as common as Net Revenue. Lag Revenue is constantly studied, normalized and modeled to help the hospital become increasingly scientific in setting cash and contractual allowance targets.
Modeled Net Revenue (%)
(Expected Reimbursement)
Net Revenue Modeling is the practice of converting This is Facility and contract specific. contract terms(and for Government Payers; DRG and APC Driven reimbursement) into an Expected Reimbursement calculation at the account level. From there, projections can be made based upon "perfection" (not considering denials and underpayments, etc.) from a Reimbursement standpoint. Modeled Net Revenue is usually expressed as a %.
This works if you Net most of the Receivables at the time of Final Billing. Many facilities utilize historical experience for Net Revenue and related contractuals.
Experiential Net Revenue (ENR) is best described as
Experiential Net Revenue % (ENR) Collections against the dollar on a large sample of zero
ENR% is used to calculate cash target,
Zero Balance accounts for 12-18 balance accounts.
ENR should be as close the the MNR as
average daily net revenue and is an input for
months
The Formula is Receipts/Charges 12-18 months of zero possible. The Delta between ENR and MNR a host of other critical Key Performance
balance charges. Often expressed as a %
is the economic opportunity.
Indicators
There may be seasonality to consider so 6 ADGR is the divisor for a number of other
months may be a better standard to determine KPI's. It is conversational language for
Average Daily Gross Revenue 6 months gross revenue/ total number of days in the average daily gross revenue. (Industry
"how much Business" is being generated on
calculation period. Expressed as a $ amount.
standards are 3 months)
a daily basis.
There may be seasonality to consider so 6 ADNR is the divisor for a number of other
Average Daily Net Revenue
6 Months net revenue / total number of days in the
months may be a better standard to determine KPI's. It is conversational language for
average daily net revenue. (Industry
"how much Business" is being generated on
calculation period. Expressed as a $ amount.
standards are 3 months)
a daily basis.
Cash as % of Net Revenue
Cash/Lag net Revenue (Or Net patient Revenue). Expressed as a %
100% or Greater
This is the most important of all KPI's and measures cash performance against opportunity for cash performance. This KPI increases in value when calculated at the Financial Class Level and allows for team by team organizational goal alignment.
Bad Debt as % of Gross Revenue
(Bad Debt Transfers - Bad Debt Recoveries) / Gross Revenue. Expressed as a % and $ amount.
This is NOT the finance view of Bad Debt
Expense (which is out of scope for this
document but includes looking at actual BD
write offs Less recoveries against the
Used to measure the effectiveness of both
budgeted BD allowance against the value of Front End Financial Securement and Self
the Self Pay Receivable)
Pay follow up.
From the Revenue Cycle Perspective, this It is critical that only qualifying accounts be
calculation should be managed daily and if at referred to BD and that the provider
3.1% or less, will equate to successful
continuously look to reallocate High Risk
migration of Bad Debt Risk. (% is client
Self Pay to Federal, State, Private and Local
specific)
or other funding sources.
Charity Care as a % of Gross Revenue
Finance, using primarily volumes and
experience, prepares a charity budget.
From a Revenue cycle Perspective, charity
Charity Care Write offs/Gross Revenue. Expressed as care write-offs are targeted at 1.9% of Gross
a % and $ amounts.
Revenue. (% is client specific)
Charity Care is described as the inability to pay for services rendered (whereas Bad Debt is based upon unwillingness to pay) Non Profits maintain their standing through the provision of Community Benefits visa vie Charity Care. Therefore, it is imperative that qualifying Charity Care accounts not be wrongly classified or through fractured process flow to bad debt.
DNFB is a term used to define unbilled accounts
DNFB Targets are financial class and patient
where the patient has been discharged (for outpatient type specific.
services the admit and discharge date is one and the
DNFB
-
Discharged
Not
Final
Billed
same) and the account is either not coded, or pending charges, service documentation or claim holds to be
Example: if your suspense days is 4 for Non Government payers then: 4 X ADGR would
released into the final billed receivable.
be your calculation...
It is critical to success that the DNFB be
The Formula for calculating the DNFB target is:
If you have a 5 day suspense for Government managed and sustained with the targeted
payers then you would calculate this as: 5 X range as that with is not coded/released
ADGR x 4 (4 is an example) ... Expressed as $
ADGR for Gov. Payers
cannot be converted to cash.
Unbilled beyond Suspense receives high
With in the DNFB receivable is a subset of accounts
attention from all functional areas within
Unbilled beyond Suspense that have moved beyond the targeted date (which is
the revenue cycle, tends to represent the
called the Suspense Cutoff date). These receivables The target for this calculation, whether
exact co-efficient of any cash short fall
represent a direct delay in cash conversion opportunity. expressed as Days, Net Days or $ is ZERO being expressed during the month.
DNFB Receivable Outstanding / Average Daily Gross
DNFB Days
Revenue (Or Net DNFB Receivable Outstanding / Fin Class specific, usually 3-5 days
Average Daily net revenue)
Also calculated as Net DNFB days
See above
This KPI is in the top 5 and is a strong
"processing KPI" but may not be tied
Gross Days In Revenue Outstanding
Calculations can vary: Gross Days Target at directly to cash performance. (Avoidable
the Financial Class level and then aggregates write - offs and high bad debt may produce
Active accounts receivable outstanding / Average daily the total for a more specific (and less
lower AR days while cash performance is at
Gross Revenue
anecdotal) approach to managing days.
a variance to target.
Calculations can vary: Net days target at the
Net Days in Revenue Outstanding Active Accounts Receivable / Average Daily Net
financial class level and then aggregates the total for more specific approach to managing
Revenue
days
See above
Days Lower Control Limit
A term used to describe absolute perfection for A/R Days at the Financial Class (and the aggregate) level. For Example, a perfect Medicare Inpatient Claim is Inhouse for 3.2 Days, DNFB for 5 days and the submitted and adjudicated in 14-16 days.
Financial Class Specific
Days LCL, for both Net and Gross, is an input used for several targets and KPI's within the Revenue cycle.
Held Claims Days
No claim should be held longer than 1
This is a standard Claims Management KPI
Claim submission date - Final Billed Date expressed as business day for correction and submission/re- that seeks to place rigid controls on
# of calendar days.
submission.
predictable, regular billing porduct in CBO.
Clean Claim Rate Erosion
1. A/R > 90
This is a standard Claims Management KPI
that seeks to place rigid controls on
Clean Claims/Total Claims expressed as a %
95-98%
predictable, regular billing product in CBO
As accounts get older, then become less collectible - or
"erode" on the Accounts Receivable.
Must maintain acceptable targets from an
Through the use of Days Lower Control
aging perspective to ensure strong cash
Creditors that loan hospitals money against their A/R Limitis, Financial class specific targets can be performance, and avoid Finance
asset use A/R > 90 as a critical measure of the health set around tolerable volumes of accounts "devaluing" the Active A/R based upon
of the accounts receivable
moving past 90 Days.
volumes moving into this aging category.
2. A/R > 120
Self pay accounts may be deemed worthless (either in Financial Class Specific and is dependent
A/R or Bad Debt) after valid collection effors for 120 upon whether SP after Insurance is blended
days.
with pure Self Pay.
120 is an important trigger for Mediare Cost Report compliance and set the standard for Bad Debt Transfers on account that are validated to be uncollectible
Targeting for POS Cash becomes meaningful POS Cash Management is critical because
POS Cash
when measured against an estimated patient the psychological opportunity to collect
portion due.
declines rapidly after the Patient leaves.
Cash collected at, or as a direct result of front end
Initiative to implement a Patient Payment There is a direct correlation between POS
functional area efforts (such as Financial Counseling) Estimator.
Cash performance and bad debt reduction.
This Metric measures the overall composition of Self
POS Cash as % of Self Pay Cash Pay Cash Performance and seeks to understand the
Collected
contribution of POS Cash Management to the Overall
Self pay campaign.
See Above
See above
Percentage of current total receivables, as defined by
Percentage of Receivable over 120 amounts owed to the provider/facility by patients, third
Benchmarks: Best practice less than 12%
Days
party payers etc. that is greater than 120 days post
Average between 12 and 25%
discharge.
Find this data in your Aged Trial Balance Alarm Greater than 25%
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